Sanguine on Exsanguination Part II
St. Louis Fed Head Poole waxes sanguine on the sub prime spillover:
Poole said problems in subprime mortgage markets -- which Fed Chairman Ben Bernanke said on Thursday could add up losses of $50 billion to $100 billion -- may have been unavoidable given the clash of new financial products and a cooling housing market.
"I believe we should conclude that this year's markets punished mostly bad actors and/or poor lending practices.
The non-prime mortgage market—with 2006 originations of about one trillion dollars clearly is large enough to affect aggregate homebuilding activity and consumer spending.
The Nattering One muses... Today, Poole, Yesterday, Bernanke finally fessing up to economic spillover. Will miracles never cease!
We do know that the total amount of home mortgages outstanding at the end of March 2007 was about $10.4 trillion.
It appears that as much as $1.3 trillion of subprime mortgages was outstanding at that time, along with about the same amount of Alt-A mortgages.
Thus, the subprime and Alt-A segments each represent 13 or 14% of the overall mortgage market."
The Nattering One muses... thats 26-28% of total mortgages outstanding. And we aren't counting the no doc stated income prime loans.
Poole told reporters after his speech that the overall system is well-capitalized.
"It is much less likely the problem will spread," Poole said, when compared with the savings-and-loan crisis in the 1980s.
According to Poole, the meltdown in the market for subprime mortgages should remain isolated and not affect the broader financial system.
On that note, optimism springs... CEO of #5 US Homebuilder KB Home doesn't see an end to the housing plunge...
till the end of 2008... and no price increases till well into 2009. KB has cut 35% of its workforce since 2005.
Gregory Hayes, vice president of accounting and control at United Technologies said the sagging U.S. housing market likely would continue into the latter part of 2008.
Speaking of no spillover or bleed into the economy, finance or banking...
Kohlberg Kravis Roberts & Co.'s banks extended a deadline for investors in 9 billion pounds ($18.5 B) of loans for Alliance Boots Plc and plans to offer better terms.
The delay in financing Europe's biggest buyout follows disruption to at least 20 bond and loan deals worldwide in the past month as the subprime mortgage rout spreads across credit markets.
"People are asking not what's the price but is there a price?" said Gary Jenkins, partner at London-based credit fund Synapse.
Jenkins said he won't be investing in the Boots loans. "There's been so much volatility and there's going to be more pain out there."
Banks are revising terms proposed on July 5 following a selloff across credit markets triggered by losses on subprime mortgage securities.
S&P yesterday cut ratings on 75 U.S. CDOs made up of subprime mortgage derivatives.
The LCDX, a two-month-old index tied to the loans of 100 companies with high-yield, high-risk ratings, fell to a record.
S&P today took action on a total of 32 European collateralized debt obligation ratings. Of the 14 it cut, nine may be cut again, it said. S&P raised 16 ratings and affirmed two.
The iTraxx Crossover Series 7 Index of the debt of 50 European companies rose to a two-year high.
Today, the number of put option contracts traded on the Financial Select Sector SPDR Fund rose to 372,247...
the most since July 2006 and almost quadruple the average during the prior 20 days.
The ETF tracks the Financial Select Sector Index, whose 92 members include Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc. and Bear Stearns Cos.
Open interest, or the number of contracts held, for the ETF's puts reached a record 2.14 million yesterday.
Implied volatility on the financial-shares ETF reached 23.81% today, the highest since Feb. 27th.
Ten-year yields have dropped almost 14 bps this week, the most since a decline of 17 bps in the week ended March 2.
This week's move reverses the June rise in 10 year yields to a five year high of 5.327%.
The Nattering One muses... no spillover into the economy, finance or banking? The Fed is sounding more and more like Exxon after the Valdez incident.
DENIAL is not a river, and this subprime housing river is about to make the bursting levies of Katrina look like a drop in the bucket.
Poole said problems in subprime mortgage markets -- which Fed Chairman Ben Bernanke said on Thursday could add up losses of $50 billion to $100 billion -- may have been unavoidable given the clash of new financial products and a cooling housing market.
"I believe we should conclude that this year's markets punished mostly bad actors and/or poor lending practices.
The non-prime mortgage market—with 2006 originations of about one trillion dollars clearly is large enough to affect aggregate homebuilding activity and consumer spending.
The Nattering One muses... Today, Poole, Yesterday, Bernanke finally fessing up to economic spillover. Will miracles never cease!
We do know that the total amount of home mortgages outstanding at the end of March 2007 was about $10.4 trillion.
It appears that as much as $1.3 trillion of subprime mortgages was outstanding at that time, along with about the same amount of Alt-A mortgages.
Thus, the subprime and Alt-A segments each represent 13 or 14% of the overall mortgage market."
The Nattering One muses... thats 26-28% of total mortgages outstanding. And we aren't counting the no doc stated income prime loans.
Poole told reporters after his speech that the overall system is well-capitalized.
"It is much less likely the problem will spread," Poole said, when compared with the savings-and-loan crisis in the 1980s.
According to Poole, the meltdown in the market for subprime mortgages should remain isolated and not affect the broader financial system.
On that note, optimism springs... CEO of #5 US Homebuilder KB Home doesn't see an end to the housing plunge...
till the end of 2008... and no price increases till well into 2009. KB has cut 35% of its workforce since 2005.
Gregory Hayes, vice president of accounting and control at United Technologies said the sagging U.S. housing market likely would continue into the latter part of 2008.
Speaking of no spillover or bleed into the economy, finance or banking...
Kohlberg Kravis Roberts & Co.'s banks extended a deadline for investors in 9 billion pounds ($18.5 B) of loans for Alliance Boots Plc and plans to offer better terms.
The delay in financing Europe's biggest buyout follows disruption to at least 20 bond and loan deals worldwide in the past month as the subprime mortgage rout spreads across credit markets.
"People are asking not what's the price but is there a price?" said Gary Jenkins, partner at London-based credit fund Synapse.
Jenkins said he won't be investing in the Boots loans. "There's been so much volatility and there's going to be more pain out there."
Banks are revising terms proposed on July 5 following a selloff across credit markets triggered by losses on subprime mortgage securities.
S&P yesterday cut ratings on 75 U.S. CDOs made up of subprime mortgage derivatives.
The LCDX, a two-month-old index tied to the loans of 100 companies with high-yield, high-risk ratings, fell to a record.
S&P today took action on a total of 32 European collateralized debt obligation ratings. Of the 14 it cut, nine may be cut again, it said. S&P raised 16 ratings and affirmed two.
The iTraxx Crossover Series 7 Index of the debt of 50 European companies rose to a two-year high.
Today, the number of put option contracts traded on the Financial Select Sector SPDR Fund rose to 372,247...
the most since July 2006 and almost quadruple the average during the prior 20 days.
The ETF tracks the Financial Select Sector Index, whose 92 members include Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc. and Bear Stearns Cos.
Open interest, or the number of contracts held, for the ETF's puts reached a record 2.14 million yesterday.
Implied volatility on the financial-shares ETF reached 23.81% today, the highest since Feb. 27th.
Ten-year yields have dropped almost 14 bps this week, the most since a decline of 17 bps in the week ended March 2.
This week's move reverses the June rise in 10 year yields to a five year high of 5.327%.
The Nattering One muses... no spillover into the economy, finance or banking? The Fed is sounding more and more like Exxon after the Valdez incident.
DENIAL is not a river, and this subprime housing river is about to make the bursting levies of Katrina look like a drop in the bucket.
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